Debate over taxing pensions in Michigan splits along generational lines

Emily Zoladz | The Grand Rapids PressA new generation gap: "I don't know if anyone's going to be able to retire in our generation," Calvin College senior Katie Baker, 21, said of the state plan to tax pensions.

The bitter Michigan fight over pensions and taxes continues to pit one generation against another, even as GOP lawmakers strike a deal with Republican Gov. Rick Snyder to soften the blow.

Snyder’s controversial tax on all pensions would be phased in by age under a tentative agreement reached Tuesday between Snyder and GOP legislative leaders. Under the plan, pensions of those now 67 and older would be tax-exempt.

A middle group of retirees now between the ages of 60 and 66 would be subject to a pension tax, but the first $20,000 of pension income for single filers, $40,000 for joint filers, would be tax-exempt.

Those now younger than 60 would pay income tax on all their pension income.

The agreement keeps in place the current tax exemption on Social Security income.

To younger workers, such as Howard City resident Kathy Kerske, 40, it’s about time the older generation chipped in.

Kerske has watched as Big Three autoworkers and public sector employees earned good money, bought nice houses and retired with generous pensions.

A decade-long economic plunge all but crushed that promise for Kerske and others like her. She looks at baby boomers and older retirees and doubts that she — or her children — will ever have it so good.

“I see it going backwards. It’s scary,” Kerske said.

And as a member of Generation X, Kerske would like it if retirees would quit complaining about a tax on their pensions.

She and her husband, David, have no defined pension, just a 401(k) account that is skimpier than it needs to be. She works in a dental office. He works on a farm. They pay $8,000 a year out of pocket for health insurance.

“They are earning Social Security and they have pensions,” she says of many retiring boomers. “I have a hard time seeing that you complain about paying a little tax.”

Grand Rapids resident Lupe Ramos-Montigny retired in 2008 after 36 years as a public school teacher, mostly in Grand Rapids Public Schools.

“I am very upset that the Legislature would even go there, to consider taxing the senior population of the state,” said Ramos-Montigny, 67, a longtime local Democratic activist.

“We are really vocal, too, and we are going to be very vocal about this issue. I certainly earned every cent of my pension.”

So goes the debate — on the surface a political clash about balancing a budget and who pays how much to make that happen. It is shaping up as a defining issue for Snyder as he pushes an agenda built on a $1.8 billion corporate tax cut and a $900 million in taxes he expected to raise on pensions and 401(k) retirement income.

But it also lays bare a deepening fault line between generations, stresses in a bond that once held one to the next.

One side guards hard-fought workplace gains won over decades, threatened by a shifting political environment and mounting government debt. The other sees advantages granted older workers they fear are gone forever.

Calvin College political science professor Doug Koopman sees it as all but inevitable fallout from a Michigan that no longer exists — one with high-wage production jobs for high school graduates, generous benefits and broad middle class prosperity.

“That’s done,” he said.

Ten years of economic contraction and a drop in tax revenues ushered in a decade of budget deficits in Lansing. that scenario led to Snyder’s election in November and his vow to reinvent Michigan.

While Snyder’s pension proposal is amplifying generational tensions, Koopman sees a bigger gulf between private sector workers who have endured layoffs and benefit cuts and public employees with relative job security and defined benefits.

“I think the attitude is, ‘It’s about time these folks go through something similar,’” he said. “Around West Michigan, what I am hearing is more, ‘Every person for themselves. I have to take care of myself because the government isn’t going to take care of me.’

“There is a real sense that the future is likely going to be worse.”

That concern is especially troubling one more generation down, as students such as Katie Baker wonder how much of Michigan’s good life is left for them.